Confessions of a Finance Manager - Oracle€¦ · The planning process usually starts That all adds up to a massive . out very organised. Finance will headache for Finance when

CONFESSIONS OF A FINANCE MANAGER

SPREADSHEET NIGHTMARES

THREE FINANCE MANAGERS SHARE THEIR TALES OF PLANNING WOE

INTRODUCTION

THE TROUBLE WITH SPREADSHEETS

THREE FINANCE MANAGERS SPEAK OUT

ldquoENRON REVEALED THAT ALMOST ONE-QUARTER OF THEM CONTAINED ERRORSldquo


No one ever said spreadsheets were a great way to run a business In one of the biggest studies of its kind an analysis of 9120 spreadsheets from the archive of failed energy giant Enron revealed that almost one quarter (24) of them contained errors1

And Enron was hardly alone a 2015 study of 1200 UK decision makers by FIF9 revealed that nearly 1 in 5 large businesses have sufered direct fnancial loss due to poor spreadsheets and one-third have made poor decisions due to spreadsheet problems2

But despite that Ventana Research found in 2015 that 70 of companies still use spreadsheets across their planning processes - even though 48 say they make the process difcult to manage3

But exactly why are spreadsheets so unreliable - and why do so many fnance functions still rely on them for strategic tasks like budgeting planning and forecasting For this ebook we spoke to three senior fnance professionals who hold - or have held - FPampA roles in midsize to large organisations

We wanted to fnd out - straight from the horsersquos mouth - what kind of challenges spreadsheets create for fnance teams and how those challenges impact their role and the wider organisation In doing so wersquove uncovered the top 7 things fnance managers hate about spreadsheets and the one reason they canrsquot let them go

Wersquove collected their personal tales of spreadsheet misery as well as historical examples where spreadsheets were responsible for major fnancial disasters Finally we ofer an easy way out of the spreadsheet morass with Oracle Planning and Budgeting Cloud Service

OUR CONTRIBUTORS

TERESA Over the past 30 years Teresa has been a key fnance manager in a number of positions ranging from Global ICT EMEA Car Leasing and more recently for a large EMEA government organisation

JIM In a career spanning 30 years Jim has held fnancial director and fnancial controller positions in a range of companies of up to $1bn revenue

SHANNON Working within the telecommunications and fnance industries Shannon has been instrumental in the budgeting and planning functions across EMEA and North America

7 THINGS FINANCE MANAGERS HATE

ABOUT SPREADSHEETS

Talking to our three fnance professionals therersquos a lot of agreement

on why spreadsheets are a less-than-ideal way to handle the planning

budgeting and forecasting processes

Here are their top 7 problems - and some real-life stories to show what

those problems feel like on the ground


1 TEMPLATES GET IGNORED

The planning process usually starts That all adds up to a massive ldquoPeople should be made out very organised Finance will headache for Finance when aware of how their budgets create a template for budget-holders it comes to consolidating the

and forecasts tie intoand distribute it to everyone who information What started out as a needs to complete it But often thatrsquos uniform set of spreadsheets turns high-level objectives and where any semblance of control ends into myriad diferent documents will be used to drive the

that all need to be reconciled back ldquoEven when itrsquos password-protected into one master budget or forecast businessrdquo he says ldquoThat people fnd a way around itrdquo says can keep budget-holders Teresa ldquoThey copy and paste the Jim thinks the problem may be focused on providing template into a diferent spreadsheet partly due to Finance not clearly

only the information thatthen start adding their own rows setting the context for the planningldquo and columns and formulaerdquo management needsrdquo

2 FORMULA ERRORS ARE RIFE

1995 At Fidelity Investmentsrsquo Magellan

2004 An employee of the University

JIMrsquoS STORY BUSINESS SALE RUINED BY FORMULA ERROR

Fund an accountant entered a of Toledo made a formula error ldquoCompany A was considering the business case for the

$13 billion capital loss as a gain in a budget spreadsheet which acquisition of another company The financial data submitted

by accidentally typing a plus mistakenly showed the university by the target company was largely created using spreadsheets

One of the most fundamental problems with free-form spreadsheets is that they rely on formulae that are all too easy to break or get wrong

While the fgures in a spreadsheet may look reliable when you dig under the surface you can uncover all kinds of horrors - like incorrectly entered formulae formulae not copied across the right rows and columns and formulae that arenrsquot right for the desired calculation

ldquoBudget-holders change formulae all the timerdquo says Teresa ldquoThey add their own calculations and fields but they donrsquot always get things rightrdquo Jim agrees ldquoTherersquos a high risk that a budget-holder will accidentally (or purposely) alter a

instead of a minus into Microsoft Excel Shareholders were subsequently under the impression the company was making major proft only to be deprived of their expected year-end pay-out

would enrol 10 percent more graduate students in the coming year rather than 10 percent fewer As a result it overestimated its projected revenue and saw a corresponding $24m cut in its funding from the state

On one sheet which used past performance data to predict future growth there was a formula error which led to an overstatement of the predicted growth Despite due diligence by the acquirer the error was not detected and the acquisition went ahead

The purchase price was based partly on historic profitability and partly on future projected performance Post-acquisition the predicted growth did not materialise and when examining the reasons for this the new management detected the spreadsheet error

The warranties in the Sale and Purchase Agreement protected the purchasers and following a court case the sellers (all

According to Teresa the risk of formula errors creates a massive headache for

formulardquo he says ldquoAnd that means a consequent

individuals) were required to repay a significant amount of the purchase consideration that they had recei ved

fnance managers ldquoIt means we canrsquot corruption of datardquo Since one of them had led a rather extravagant lifestyle take fgures on trust - we have to comb on the strength of his new-found wealth the court order through every cell to make sure the led to his personal bankruptcy A cautionary tale not only formulae are correct and appropriaterdquo about the use of spreadsheets but also about warranties

in sale agreements and profligate spendingrdquo


TERESArsquoS STORY SALES TEAM WORKING OFF DIFFERENT ASSUMPTIONS TO THE BOARD

ldquoAt a large mortgage If the discrepancy hadnrsquot been noticed it would have meant the sales teamlender the board had being paid commission on different

set strategic goals based results from the organisationrsquos

on a certain volume of strategic goals It was only when Finance sat down with the budget-production But when holders in Sales to walk through their

the sales team put assumptions that it came to light that their budget together they were working to a different goal

they were working to The lesson learned Itrsquos dangerous

different production to work solely off spreadsheets when

numbers because the consolidating budget submissions You have to have an ongoing discussionhigh-level strategy with budget-holders to ensure

hadnrsquot been properly their budgets are properly aligned communicated to them with overall business strategyrdquo

3 SPREADSHEETS THAT ONLY MAKE SENSE TO THE OWNER

Spreadsheets are very easy to ldquoPeople donrsquot just format the Shannon agrees with the customise and thatrsquos great - for the person doing the customising

spreadsheets in the way they prefer they also base calculations

principle but warns that in a large organisation Finance may not have

But when hundreds of customised planning spreadsheets are

off their own assumptions without listing those assumptions in the

time to meet personally with every budget-holder ldquoIn a large company

submitted to Finance for entering into the main budget it can be

spreadsheetrdquo says Teresa It can be impossible to under stand what

itrsquos more practical to meet with departmental representatives of a

impossible to tell what information they are trying to convey

people meant You actually have to physically go and sit down

group of budget-holders rather than everyone individuallyrdquo she says

with every budget-holder and ask them to walk you through their assumptions otherwise you could end up interpreting the spreadsheets completely wronglyrdquo


2011 AstraZeneca sufered a 04 percent drop in its share price after mistakenly releasing ldquoout of date planning informationrdquo to analysts which seemed to contradict the forward guidance it had already given to the market The company said the erroneous information was embedded in a spreadsheet that had been issued to the analyst community It restated the guidance it had previously given to investors but was unable to avoid the share price drop

4 POOR DOCUMENT MANAGEMENT

Spreadsheets are very easy to edit and delete so vital spreadsheets rename save and delete - and those can be lost - either temporarily (if four things add up to a nightmare they have an unassuming name) When multiple people are saving or forever (if theyrsquore accidentally their own versions of a spreadsheet deleted) And thatrsquos without even sometimes to their own local hard considering the data security drives itrsquos frighteningly easy to lose aspects of having employees track of which version has the most walking around with budget accurate up to date information and forecast spreadsheets on Unprotected fles are easy to rename laptops phones and USB keys


SHANNONrsquoS STORY THE PERILS OF POOR DOCUMENT NAMING

ldquoAt one company I worked at we ran a very complex interlinked set of spreadsheets to manage the revenue budget The entire set of assumptions for this ramshackle system were contained in their own spreadsheet - which for some reason was simply named ldquoBook2rdquo I shudder to think of it ldquoBook2rdquo could have been just about anything A document with that name could be easily lost or deleted in error It just shows how precarious some core business-critical systems can get when theyrsquore managed with spreadsheetsrdquo

5 KEY PERSON DEPENDENCY

Itrsquos quite common for there to be only one person in the fnance function department or budget group who really understands how the budget or forecast spreadsheets work

Sometimes this kind of key person dependency only comes to light when urgent changes or updates need to be made and the person is out sick or on holiday

Shannon recalls that at one company where she worked only one person in the fnance department understood how the highly complex revenue budget spreadsheets worked

ldquoBasically when that person was on holiday we couldnrsquot run any scenarios based on revenuerdquo she says ldquoWe couldnrsquot see what impact a certain scenario would have so we couldnrsquot plan to manage our risk It meant we couldnrsquot always respond on the fy to changing circumstancesrdquo


2014 Walgreens CFO Wade Miquelon was forced to resign after the company made a $1bn forecasting error in its Medicare business According to the Wall Street Journal the pharmacy chain had not factored in a spike in the price of some generic drugs that it sells as part of annual contracts

6 BUDGET-HOLDER RESISTANCE

All of our fnance executives agree Teresa agrees ldquoPlanning tends to be on one thing budget-holders do seen as a chore - a one-of number-not usually enjoy the planning and crunching exercise The purpose of forecasting process And that means it is often poorly communicated so theyrsquore not always motivated to submit budget-holders donrsquot understand timely high-quality information the role that planning - and then

re-forecasting - play in enabling the ldquoThere are lots of reasons budget- business to achieve its objectives holders donrsquot like the processrdquo says So not as much thought goes into it Jim ldquoSome donrsquot like being asked to as you might hope And that creates commit to fgures theyrsquoll later be held a lot of extra work for Financerdquo to Others just donrsquot have enough time to devote to it Some people donrsquot like When budget-holders arenrsquot the tools and templates theyrsquore given committed to the process that means Sometimes theyrsquore not clear on what spreadsheets are submitted late they they need to do because it hasnrsquot been donrsquot have the right information or communicated to them properlyrdquo they donrsquot have enough information

to enable good decision-making Jim points out that often budget-holders themselves donrsquot have access to enough operational data to be able to provide an accurate plan or forecast ldquoThat results in an inability to drive the business based on quality forecast datardquo he says

In volatile times waiting for (potentially inaccurate) re-forecasts to come through from every business unit means the business canrsquot react fast to changing conditions - negating the whole reason for planning and forecasting in the frst place

7 FINANCE GETS THE BLAME WHY ARE SPREADSHEETS

STILL SO POPULAR The biggest headache for our fnance professionals is the impact it has on their working lives One particularly painful issue is that any errors or delays are always blamed on Finance

ldquoIf the budget isnrsquot in the system in time for the frst board meeting of the year Finance loses credibilityrdquo says Teresa ldquoAnd if there are any errors that havenrsquot been spotted itrsquos always Financersquos faultrdquo

Making sure that doesnrsquot happen creates a huge workload for fnance teams ldquoWhen you have so many budget-holders therersquos often not enough resources in Finance to pull the spreadsheets togetherrdquo says

Teresa ldquoIt means working long stressful hours - consolidating the data and checking and rechecking for errorsrdquo

Jim adds that developing and maintaining the spreadsheets also takes up time that could be dedicated to more strategic activities like analysing fnancial data and advising the board on how to respond to it ldquoEssentially the role of planning forecasting and budgeting should be about making sure strategic goals can be achieved in realityrdquo says Teresa ldquoThat requires Finance to analyse the numbers and advise on the right business decisions to take in response to them But thatrsquos hard when most of the time is taken up just getting the data into one placerdquo

Itrsquos clear that spreadsheets can cause as many problems as they solve But our interviewees agree that spreadsheet use is still rife because theyrsquore a way of life for finance professionals

ldquoIn 1997 I was working for a multi million-dollar revenue IT companyrdquo recalls Teresa ldquoA new CFO arrived and one of the fir st things he said to us was lsquoyou cannot run a company of this size on spreadsheetsrsquo Twenty years later and for a lot of companies nothing has changedrdquo

ldquoI could talk all day about the problems with spreadsheetsrdquo says Jim ldquoBut try taking them away from us - yoursquod have a riotrdquo

IS THERE A WAY OUT OF THIS MESS But is there a way for finance professionals and budget-holders to have their cak e and eat it To preserve all the familiarity and flexibility of planning budgeting and forecasting in spreadsheets but without the enormous headache of gathering consolidating and checking hundreds of individual spreadsheets

Thatrsquos what Oracle offers with Oracle Planning and Budgeting Cloud Service


SUPERCHARGE YOUR SPREADSHEETS WITH ORACLE PLANNING AND BUDGETING CLOUD SERVICE

Oracle Planning and Budgeting Cloud Service is an integrated planning platform that gathers and delivers insight from all lines of business

Its familiar customisable interface ofers the fexibility of a spreadsheet but because itrsquos a centralised system therersquos no need to collect and consolidate indi vidual spreadsheets And itrsquos hosted in the cloud so there are no upfront infrastructure or licensing costs to pay - just a regular monthly subscription

Oracle PBCS has many advantages for budget-holders and fnance teams alike with advanced functionality for predictive modelling and creating what-if scenarios as well as linking sales operational and strategic plans In doing do it provides

bull Scalability to reach all budget-holders and other contributors to the plan without constraints

bull Accurate forecasts using most likely outcomes based on trends

bull Visibility into alternate possibilities and changing business conditions

bull The ability to quickly reforecast and change direction as conditions change

Oracle PBCS also automates workfow with clear task lists that provide control and visibility over the whole process Finance teams that use Oracle PBCS say they spend 38 percent less time in the forecasting process 23 percent less time gathering data and 35 percent more time analysing data than peers who rely on disconnected spreadsheets

Thatrsquos a huge win when you consider that according to an IBM study CFOs who are efective at integrating fnancial and operational data embedding analytics in every process and using advanced analytical techniques to predict future trends outperform their peers by 70 percent on measures of proft and revenue

REFERENCES

1 Delft University of Technology Enronrsquos Spreadsheets and Related Emails A Dataset and Analysis 2014

2 F1F9 Capitalismrsquos Dirty Secret 2015

3 Ventana Research Next-Generation Business Planning Benchmark Research 2015

4 New York Times Magellan Error Is Explained January 1995

5 CIO Magazine Eight of the Worst Spreadsheet Blunders August 2007

6 Reuters AstraZeneca reafrms outlook after mistaken release January 2012

7 Reuters Walgreen CFOrsquos departure due to $1 billion forecasting error August 2014

8 IBM CFO Study ldquoPushing the Frontiers CFO Insights from the Global C-Suite Studyrdquo 2014

EXPLORE ORACLE PLANNING AND BUDGETING CLOUD SERVICE TODAY If yoursquod like to see the difference Oracle PBCS could make to your planning budgeting and forecasting processes visit the resource page or contact Oracle at +44 207 562 6822

Modern Finance Leader (httpsblogsoraclecom modernfinance)

httpswwwfacebookcom OracleEPMCloud

httptwittercomoracleepmcloud

httpswwwyoutubecom oracleepminthecloud

Also take a QuickTour of our solutions demooraclecom

INTRODUCTION

THE TROUBLE WITH SPREADSHEETS

THREE FINANCE MANAGERS SPEAK OUT

ldquoENRON REVEALED THAT ALMOST ONE-QUARTER OF THEM CONTAINED ERRORSldquo


No one ever said spreadsheets were a great way to run a business In one of the biggest studies of its kind an analysis of 9120 spreadsheets from the archive of failed energy giant Enron revealed that almost one quarter (24) of them contained errors1

And Enron was hardly alone a 2015 study of 1200 UK decision makers by FIF9 revealed that nearly 1 in 5 large businesses have sufered direct fnancial loss due to poor spreadsheets and one-third have made poor decisions due to spreadsheet problems2

But despite that Ventana Research found in 2015 that 70 of companies still use spreadsheets across their planning processes - even though 48 say they make the process difcult to manage3

But exactly why are spreadsheets so unreliable - and why do so many fnance functions still rely on them for strategic tasks like budgeting planning and forecasting For this ebook we spoke to three senior fnance professionals who hold - or have held - FPampA roles in midsize to large organisations

We wanted to fnd out - straight from the horsersquos mouth - what kind of challenges spreadsheets create for fnance teams and how those challenges impact their role and the wider organisation In doing so wersquove uncovered the top 7 things fnance managers hate about spreadsheets and the one reason they canrsquot let them go

Wersquove collected their personal tales of spreadsheet misery as well as historical examples where spreadsheets were responsible for major fnancial disasters Finally we ofer an easy way out of the spreadsheet morass with Oracle Planning and Budgeting Cloud Service

OUR CONTRIBUTORS

TERESA Over the past 30 years Teresa has been a key fnance manager in a number of positions ranging from Global ICT EMEA Car Leasing and more recently for a large EMEA government organisation

JIM In a career spanning 30 years Jim has held fnancial director and fnancial controller positions in a range of companies of up to $1bn revenue

SHANNON Working within the telecommunications and fnance industries Shannon has been instrumental in the budgeting and planning functions across EMEA and North America


ABOUT SPREADSHEETS

































































































REFERENCES
















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Documents

Confessions of a Finance Manager - Oracle€¦ · The planning process usually starts That all adds up to a massive . out very organised. Finance will headache for Finance when